NHS Trusts Delaying Payment To Suppliers – Time For SCF?

The crisis in NHS funding is beginning to have a serious effect on suppliers to the UK health sector. We recently spoke to the owner of a mid-sized business that supplies the sector. He explained that some Trusts had gone as far as putting an effective “freeze” on payments to suppliers for weeks on end. Waiting three or four months for payment is not unusual at the moment.

The overall effect on that business was that receivables were now 15 days higher on average than they were a year or two ago. That may not sound too big a change, but if you are a business for whom salaries are the majority of your cost base, you can’t just recover this by delaying payment to your own suppliers (and that is not exactly good practice anyway!). For a £5 million annual revenue business, this might mean needing another £200K overdraft or other funding – not insignificant, and for some vulnerable businesses it could be the final straw.

There are few easy answers here. NHS Trusts can’t really go bust themselves – if they could, and were subject to private sector financial disciplines, then some would have already joined Carillion. The Health Service Journal reported last week that “the combined deficit of NHS trusts is now forecast to grow to £930m by the end of 2017-18, according to figures published by NHS Improvement today”.

That is basically the shortfall in funding for the NHS, and more and more Trusts are getting into financial difficulties. But while there are no easy answers, it is not fair or sustainable for buyers to use their supply base as a source of working capital, which is what delaying payments in effect means. So it might be time for a major drive to look at supply chain finance options for the NHS. This doesn’t solve the problem of under-funding or over-spending (whichever way you look at it), but it could provide a one-time significant benefit for Trusts.

If Trusts formally extended their payment terms, but offered suppliers the option of receiving payment “instantly” (or close to that), in return for a small fee (small because interest rates are low currently at least), then there could be a serious win:win here.

We know that effective supply chain finance is easier with robust and preferably electronic invoice processes, but introducing that in itself can be an effective efficiency benefit. The situation might also be complicated as many Trusts use NHS SBS for invoicing services, but that should not preclude some steps in that direction.

In the meantime, firms who aren’t being paid could start charging interest, or going public with their complaints. So watch out for this issue to surface more strongly unless the NHS funding issues start moving in a more positive direction. But that seems unlikely at this moment.